Today, the Department of Education announced steps that will bring borrowers closer to public service loan and income-driven repayment (IDR) forgiveness by addressing historical failures in the administration of the federal student loan programs. Federal Student Aid (FSA) estimates that these changes will result in immediate debt cancellation for at least 40,000 borrowers under the Public Service Loan Forgiveness (PSLF) Program. Several thousand borrowers with older loans will also receive forgiveness through IDR. More than 3.6 million borrowers will also receive at least three years of additional credit toward IDR forgiveness.
“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” said U.S. Secretary of Education Miguel Cardona. “Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans. These actions once again demonstrate the Biden-Harris administration’s commitment to delivering meaningful debt relief and ensuring federal student loan programs are administered fairly and effectively.”
These actions are part of the Department’s commitment to address historical failures in the administration of the federal student loan program and support student loan borrowers through the pandemic. They also help address the impact of the COVID-19 pandemic on borrowers with lower incomes and high debt loads. Today’s steps will help restore the promise of IDR plans by ensuring that borrowers have an affordable and effective path out of debt.
Beyond the immediate corrective actions announced today that will provide relief to borrowers harmed in the past, FSA will take action to ensure that borrowers receive these benefits in the future. Below are the actions being taken today.
Ending “Forbearance Steering”
Department regulations require that borrowers who are facing difficulty making their loan payments get clear and accurate information from servicers about their options for staying out of delinquency, including IDR plans, and the financial consequences of choosing short-term options like forbearance. However, FSA reviews suggest that loan servicers placed borrowers into forbearance in violation of Department rules, even when their monthly payment under an IDR plan could have been as low as zero dollars. These findings are consistent with concerns raised by the Consumer Financial Protection Bureau and state attorneys general. A borrower advised to choose an IDR plan instead of forbearance can get a reduced payment, stay in good standing, and make progress toward loan forgiveness. A borrower advised to choose forbearance – particularly long-term consecutive or serial uses of forbearance – can see their loan balance and monthly payments grow due to interest capitalization and lead to delinquency or default.
The Department will address forbearance steering by:
To fully address past issues with IDR payment counting, FSA will do a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans. Any months in which borrowers made payments will count toward IDR, regardless of repayment plan. Payments made prior to consolidation on consolidated loans will also count. This fix is necessary to correct for data problems and past implementation inaccuracies. Any borrower who has made the required number of payments for IDR forgiveness based on this payment-count revision will receive loan cancellation automatically. Additionally, FSA will count months spent in deferment prior to 2013 toward IDR forgiveness (with the exception of in-school deferment) for this same population of borrowers to address concerns that, prior to that date, its data cannot distinguish IDR-eligible deferments from other deferments.
To make college more affordable for current and future students, President Biden has called for and Congress has included in bipartisan legislation a $400 increase in the maximum Federal Pell Grant—the largest increase in the maximum award in over a decade.
To protect students and taxpayers from predatory or low-value colleges, the Department has also restored the FSA Office of Enforcement and started efforts to strengthen key rules including borrower defense to repayment and gainful employment.